T.C. Summary Opinion 2001-158
UNITED STATES TAX COURT
MAJID NAEMI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8339-00S. Filed September 26, 2001.
Majid Naemi, pro se.
Michele A. Yates, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed.1 The decision to be
1
All subsequent section references are to the Internal
Revenue Code in effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
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entered is not reviewable by any other court, and this opinion
should not be cited as authority.
Respondent determined a deficiency of $657 in petitioner’s
1997 Federal income tax. Respondent concedes that petitioner is
entitled to a refund of Social Security tax in an amount to be
determined based upon our resolution of the issue in this case.
The sole issue remaining for decision is whether petitioner is
entitled to a deduction for a $2,000 contribution to an
individual retirement account (IRA).
Some of the facts have been stipulated and are so found.
The stipulation of facts and the accompanying exhibits are
incorporated herein by reference. Petitioner resided in Falls
Church, Virginia, at the time the petition in this case was
filed.
Background
Petitioner was employed by CDI Corporation (CDI) in December
1997 for a period of 2 weeks which included two pay cycles.
During both pay periods petitioner contributed to an employer-
sponsored retirement plan. Also during the year in issue,
petitioner made a $2,000 contribution to his IRA. On Form 1040
of his Federal income tax return filed for 1997, petitioner
claimed a deduction of $2,000 for a contribution to an IRA.
By notice of deficiency, respondent disallowed the entire
IRA deduction. Respondent agrees that petitioner made a $2,000
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contribution to an IRA for the year in issue but argues that
petitioner is prohibited from deducting any of that amount during
the year in issue. Specifically, respondent contends that
petitioner was an “active participant” in an employer sponsored
retirement plan as that term is defined in section 219(g)(5)(A).
Petitioner maintains that he is entitled to deduct
contributions to his IRA because he was not eligible to
participate in CDI’s retirement plan. Petitioner also maintains
that because his rights in the retirement plan had not vested
when his employment terminated, he should not be precluded from
deducting his $2,000 IRA contribution.
Discussion
Section 219(a) generally allows a taxpayer to deduct the
amount contributed to an IRA. The deduction in a taxable year,
however, may not exceed the lesser of $2,000 or an amount equal
to the compensation includable in the taxpayer’s gross income for
the year. See sec. 219(b)(1). The amount of the deduction may
be limited further for a taxpayer who is an “active participant”
in a qualified plan under section 401(a). See sec. 219(g)(1),
(5)(A)(i).
An individual is an active participant in a qualified plan
if, for any part of the year, he is eligible to participate in
the plan and makes voluntary or mandatory contributions to the
plan. See sec. 219(g); secs. 1.219-1(c)(2), 1.219-2(b)(1), (e),
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Income Tax Regs. In the case of a single taxpayer, the deduction
is totally disallowed for 1997 if the taxpayer’s modified
adjusted gross income2 (modified AGI) exceeds $35,000 for the
taxable year.3 Petitioner reported modified AGI of $120,384.17
in 1997; thus he is not entitled to a deduction if he was an
active participant in a qualified retirement plan.
Petitioner does not appear to raise the issue of whether the
CDI pension plan is of the type listed in section 219(g)(5).
Therefore, we find that petitioner has conceded that CDI’s
retirement plan is among those listed.
Generally, a deficiency notice is presumed correct, and the
taxpayer has the burden of proving it wrong. See Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933).4 Petitioner
testified that he was not eligible to participate in CDI’s plan.
The only other evidence in the record is CDI’s Form 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., indicating
petitioner’s participation in its retirement plan. Respondent
2
Modified adjusted gross income, as relevant herein, is
adjusted gross income determined without regard to any deduction
for an IRA. See sec. 219(g)(3)(A).
3
A single taxpayer’s deduction for an IRA contribution in
1997 is limited using a ratio determined by dividing the excess
of the taxpayer’s modified adjusted gross income over $25,000, by
$10,000. See sec. 219(g)(2) and (3).
4
We do not find that the burden-shifting provisions of
current sec. 6201(d) or sec. 7491 apply.
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argues that the Form 1099-R provides sufficient evidence to
sustain a determination that petitioner was both eligible for and
an active participant in CDI’s retirement plan. We agree.
Section 1.219-2(e), Income Tax Regs., does not address a
taxpayer’s eligibility to receive benefits under a qualified
retirement plan; rather it concludes that mere contribution
creates active participant status. Petitioner has failed to
establish that participation in the plan was voluntary and that
he elected not to participate. Based on the scant evidence in
the record, we find that petitioner was eligible and thus, was an
active participant within the meaning of section 219(g) during
the year in issue.
Petitioner was accruing benefits, albeit unvested, under
CDI’s retirement plan during 1997. Regardless of whether
petitioner’s rights vested and despite the fact that his
contributions were returned to him upon the termination of his
employment in 1997, petitioner was an active participant in a
qualified retirement plan in 1997. Hildebrand v. Commissioner,
683 F.2d 57, 58 (3d Cir. 1982), affg. T.C. Memo. 1980-532; Eanes
v. Commissioner, 85 T.C. 168, 170-171 (1985).
While the result to petitioner appears harsh, we cannot
ignore the flush language of the statute and, in effect, rewrite
the statute to achieve what seems to be a more equitable result.
See Eanes v. Commissioner, supra at 171. “Whether and to what
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extent deductions shall be allowed depends upon legislative
grace; and only as there is clear provision therefor can any
particular deduction be allowed.” New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
Because petitioner was an active participant in CDI’s
qualified retirement plan during 1997 and his gross income for
the year exceeded $35,000, petitioner is not entitled to an IRA
contribution deduction for tax year 1997.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.